In the last years, I had the chance to devote most of my waking hours to think about a big issue for any business: distribution.
The way a company structures its operations become vital to its long-term ability to create value. In fact, the business model is an essential part of any business.
Often, especially in the start-up world, there is the belief that a great product or service is all you need. However, that is not the case.
In fact, the tech giants listed in this article all mastered distribution. There is no doubt that each of them has excellent products and offer incredible services.
However, without a proper distributionstrategy, their success wouldn’t have been possible.
Apple has a business model that is broken down between products and services. Apple generated over $365 billion in revenues in 2021, of which $191.9 came from the iPhone sales, $35.2 came from Mac sales, $38.3 came from accessories and wearables (AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and accessories), $31.86 billion came from iPad sales, and $68.4 billion came from services.
Apple’s business model is based on the sales of products. It is undeniable that the value of those products is based on Apple’s ability to create a friendly environment for its products.
Apple sold over $191 billion worth of iPhones in 2021!
Apple’s sales breakdown
2021
iPhone
$191.97B
Mac
$35.19B
iPad
$31.86B
AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and accessories
$38.36B
Services (Company’s advertising, AppleCare, cloud, digital content, payment, and other services)
$68.42B
Total
$365.81B
As of 2021, the iPhone still represents over 52% of the total sales.
Apple’s made over $365.8 billion in revenues in 2021, of which over $191.9 billion or over 52% of its total revenues came from the iPhone. Yet, the iPhone isn’t just a hardware product; it’s a businessplatform that combines hardware (iPhone), operating system (iOS), and a marketplace (the App Store). Thus, the company still makes most of its money around a single product which powers up an entrepreneurial ecosystem.
Microsoft has a diversified businessmodel, spanning from Office to gaming (with Xbox), LinkedIn, search (with Bing), and enterprise services (with GitHub). In 2021, Microsoft made over $168 billion in revenues, of which over $52 billion came from Server products and cloud services and $39.8 billion came from Office products and cloud services. Windows generated over $23 billion, Gaming generated over $15 billion, LinkedIn over $10 billion, and search advertising (through Bing) over $8.5 billion.
Founded in 1975 Microsoft has survived a few tech bubbles and thrived. In fact, as of the time of this writing, Microsoft is still one of the most valued companies, with a market capitalization of over seven hundred billion dollars.
That is also because the company has been able to use the excess cash it generated in the last decades to acquire new ventures.
In fact, when Microsoft sniffs a trend, it goes all in. For instance, in 2016 Microsoft bought LinkedIn to enter the professional network space.
Microsoft is also in the search and advertising industry with Bing. In short, Microsoft has been able to use its cash cow, the Microsoft Office System to diversify its business model.
Today Microsoft is quite diversified and it comprises platforms, like LinkedIn.
2021
Server products and cloud services
$52.59B
Office products and cloud services
$39.87B
Windows
$23.22B
Gaming
$15.37B
Linkedin
$10.29B
Search advertising
$8.5B
Enterprise services
$6.9B
Devices
$6.8B
Other
$4.48B
$168B
In 2021, Microsoft generated over $168 billion in revenues, with server products and cloud services passing for the first time office products.
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services, Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.
Amazon is one of the most disruptive tech companies. It started as an online bookstore to become the everything store; even though most of its revenues come from its store.
There is a growing part of the business that relies on seller services, subscription services (Prime), and cloud-based services (AWS). Therefore, Amazon too has a diversified business model.
It is highly probable that the part of the business related to seller services, subscriptions, and cloud-based services will be the most critical part of the company also from the revenue generation standpoint.
Amazon Revenue Breakdown
2021
Online stores
$222B
Physical stores
$17B
Third-party seller services
$103.3B
Subscription services
$31.76B
AWS
$62.2B
Advertising
$31.16B
Other
$2.17B
Although the cloud services represent a small part of the business as of now. What started as a “side project” might be the most important business segment in the coming years.
Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, this comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium).
Google’s business model is based mainly on advertising. Even though the company has placed some bets on products that are not related to its main business model.
Even though Google was a latecomer in the search engine industry, it took it over with the algorithm that changed the web: PageRank.
Google Revenue Breakdown
2021
Google Search & other
$148.95B
Google Network Members’
$31.7B
YouTube ads
$28.85B
Google other
$28B
Google Cloud
$19.2B
Other Bets
$0.75B
As of 2021 81% of the revenues come from the advertising networks of Google. In fact, advertising generates over $209 billion dollars in revenues; no doubt that is the cash cow for Google.
It is also true that the company is growing other revenue streams (such as Apps, Google Cloud, and Hardware).
Those sources will grow more and more in the future as Google will rely less on advertising. Google’s business model, and ability to create value for several key players – I argue – is the key ingredient to its success.
Starting as a social experiment, at Harvard University, back in 2004, Facebook quickly expanded to reach over 1 million monthly active users by the end of the same year. By early 2005, Facebook was already present in 800 college networks. By 2012, as Facebook got ready for its IPO, the company reached over a billion monthly active users.
In fact, as of 2021 over 97% of its revenues came from advertising.
Meta Revenue Breakdown
2021
%
Advertising
$114.9 Billion
97.5%
Other revenue (payments and fees)
$721 Million
0.6%
Reality Labs (primarily sales of Oculus, now called Meta Quest)
$2.27 Billion
1.9%
Total
$117.9 Billion
Throughout the 2020s, Facebook went thru a few turmoils. The latest, which posed a threat to its whole business model, was the Apple privacy change policy, which made Facebook advertising machine way less effective.
This forced Facebook to transition into Meta. A rebrand that was completed in 2022.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about three million business students, executives, and aspiring entrepreneurs in 2021 alone | He is also Head of Enterprise Sales for a high-tech startup, which he helped grow at a double-digit rate since the onset | In 2012 Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
